SHOW NOTES: 2019-07-25 MiM

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Last Week’s Question of the Week: What percentage of active stock managers FAIL to beat their benchmarks — 50% or 90%?

ANSWER: Over 90% of active stock managers fail to beat their benchmarks.

HOST: When it comes to collecting our own social security benefit, how is the amount even calculated? And how will we know how much we can expect?

KLAAS FINANCIAL: Yes, we always come back to this topic because for many people planning for retirement, Social Security will likely play an important part in their income.

Yes, so let’s review some FACTS about Social Security — is a WONDERFUL resource for people regarding social security. Set up a login to view your own account at any time.

You qualify for Social Security benefits by earning Social Security credits when you work in a job and pay Social Security taxes. If you are self-employed, you earn Social Security credits the same way employees do. You must earn 40 credits which equals 10 years of work to qualify for RETIREMENT BENEFITS through Social Security. You earn a maximum of four credits per year. The amount needed for each credit in 2019 is $1,360 and the amount needed to earn one credit increases automatically each year when average wages increase. If you earn at least $5,440 this year, you will max out your credits. These are also referred to as QCs (quarters of coverage). No matter how high your earnings may be, you cannot earn more than 4 QCs in one year.

It’s important to understand that Social Security will use your earnings and work history to determine your eligibility not only for retirement benefits but also for disability benefits or your family’s eligibility for survivors benefits when you die. The credits you earn remain on your Social Security record even if you change jobs, have no earnings for a while or pass away.

How does Social Security determine your benefit? Social Security takes a look at your lifetime earnings, adjusting them for inflation, and then calculates your average indexed monthly earnings during the highest 35 years of employment to determine your benefit.

Another interesting thing to note is that you are eligible for cost-of-living benefit increases starting with the year you become age 62. This is true even if you don’t get benefits until your full retirement age or even age 70.

HOST: What happens to my benefit if I take it early? Or if I delay it?

KLAAS FINANCIAL: Everyone wants to know WHEN they can first take their benefit and what that means in terms of money. First, understand that there is a difference from when you can first take benefits and when it is actually your full retirement age (FRA). For anyone born between 1943-1954, your full retirement age is age 66, for those born between 1955 and 1959 your full retirement age is 66 plus some months. For those born after 1960, it is age 67.

You have the option to take your benefit as early as 62, but you need to remember that your benefit will be reduced. An easy example of this is, if your full retirement age is 66 and If you start receiving retirement benefits at:

  • age 62, you will get 75% of the monthly benefit because you will be getting benefits for an additional 48 months.
  • age 65, you will get 93.3% of the monthly benefit because you will be getting benefits for an additional 12 months.
  • after age 66, DRC’s: When you delay your retirement past your full retirement age, Social Security benefits are increased a certain percentage (depending on your date of birth) and these are known as DRC- Delayed Retirement Credits. Your benefit can increase up to 8% per year until you start taking benefits, or until you reach age 70. Therefore, almost NO reason to NOT take benefits once you reach age 70.

HOST: What happens if I have not earned enough credits to collect a social security benefit?

KLAAS FINANCIAL: If you have not worked or do not have enough Social Security credits to qualify for your own Social Security benefits, you may be able to receive your spouse’s benefits. To qualify for spouse’s benefits, you must be:

  • At least 62 years of age; or
  • Any age and caring for a child entitled to receive benefits on your spouse’s record who is younger than age 16 or disabled.
  • If you start receiving benefits as a spouse at your full retirement age, you will get 50% of the monthly benefit your spouse would receive if their benefits started at full retirement age. Your benefit will be permanently reduced just as if it were your own benefit if you begin your benefits before your full retirement age.
  • If you do have enough credits to qualify for your own Social Security benefits and you apply for your own retirement benefits and for benefits as a spouse, YOUR benefits are paid first. If your benefits as a spouse are higher than your own retirement benefits, you will get a combination of benefits equaling the higher spouse benefit.

EXAMPLE: If your spouse qualifies for $2,500 as a benefit per month, and you never worked outside the home, you may be eligible to receive $,1250 per month from your spouse’s record, if:

  • You are married for at least a year, and have no Social Security benefit coming from your own record, or
  • You know that you are entitled to ALL of your benefit (assuming you do have enough credits) or half of your spouse’s benefit, whichever is greater (be aware of age discounting).

HOST: What about divorce and social security?

KLAAS FINANCIAL: Great question, if you were married you may have some options. If you are currently still un-married and your marriage lasted at least 10 years, you may be able to get benefits on your former spouse’s record, even if they have re-married.
The amount can be up to 50% of the worker’s benefit at his or her full retirement age. If you remarry, however, the divorced spouse benefit stops. You must be at least 62 to get spousal benefits.

Important Tip: Your ex must be at least 62 for you to receive a divorced spousal benefit, but does not need to be receiving his or her own benefit. That’s different from regular spousal benefits, which typically require the primary worker to apply before the spouse can receive anything.

If your ex has died and the marriage lasted at least 10 years, you could qualify for survivor benefits of up to 100% of your ex’s benefit. You can remarry at 60 or older (or 50 and older if disabled) and still receive divorced survivor benefits. Survivor and divorced survivor benefits can begin at age 60, or at age 50 if the survivor is disabled, or at any age if you’re caring for your ex’s child who is under 16 or disabled (and in that case, the 10-year marriage requirement is waived).

People receiving survivor benefits can switch to their own benefit later if that’s larger, and vice versa. Survivor benefits are based on what your ex was receiving or would have received at full retirement age. (If your ex delayed starting benefits past full retirement age, the survivor benefit is increased by those delayed retirement credits.) If you start benefits before your own full retirement age, however, the amount you get will be reduced.

HOST: Every week you have questions that either we can’t fit on the air from a call, or questions are emailed in. So today, we are introducing our new Money in Motion Listener Question Corner… this week, Steve asked:

“I have heard that I can perhaps collect my spouses benefit first and then switch to my own later, so that it will be higher? Is this right?”

KLAAS FINANCIAL: Yes, so if you are collecting a spousal benefit, typically the higher-earning spouse needs to be receiving a retirement benefit for the other partner to get a spousal benefit. In the past, higher earners could “file and suspend” to let their own benefits grow, but that’s no longer an option.

When you apply, Social Security will compare your spousal benefit to your own retirement benefit and give you the larger of the two. In most cases, you won’t be able to switch from a spousal benefit to your own benefit later, even if your own benefit would be larger. People born before Jan. 2, 1954, do have the option of filing a “restricted application” for spousal benefits only and then switching to their own benefit later.

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Catch C.J. Klaas and Maleeah Cuevas on Money in Motion every Thursday on Madison's 1310 WIBA from 8:05-8:35am.